Crowdfunding Community Rounds: Balancing Positive and Negative Signals

An article we liked from Thought Leader Jonny Price of Wefunder:

Positive Signal

It's true that Community Rounds can be a "negative signal". And it's also true that they can be a "positive signal".

People often ask me: “Is it a negative signal if I run a community round? Does it look like I can’t raise capital from “real” investors?”

As with most questions, my answer (perhaps surprisingly) is: “It depends”.

Running a bad community round can indeed be a negative signal. And raising $5 million in a day from thousands of passionate customers and fans, as part of a larger venture-led round, is an emphatically positive signal.

Set an achievable goal. And quickly hit it.

A key question here is “How does the community round go?” If you over-subscribe your round in a day, that’s a strong positive signal. But if you are targeting raising $1 million, and you limp to $174K raised over 7 months, and you’re aggressively spamming your LinkedIn network that whole time, most people would agree that’s a negative signal.

And not only would this be bad optics in itself. But it would also further exacerbate the fundraising challenge. This is anti-FOMO. Wefunder raises that are lingering, and proceeding painfully slowly, are much less compelling to invest in, than raises that are moving quickly.

So how to eliminate the risk of negative signal from a weak Wefunder raise? Four ideas:

1. Make sure the investment is compelling.

Do you have a company people want to invest in? Can you (as the founder) pitch it effectively? Is the investment structure appropriate? Unless the answers to these questions are Yes, Yes and Yes, then hold off on launching your community round. To answer these questions, talk with the people that will write the first checks into your community round. And if you can’t find a growing number of anchor investors excited to invest, don’t launch publicly yet.

2. Set an achievable goal.

In the hypothetical example above, of the founder who raised $174K in 7 months, if she had set a goal of $100K, perhaps she would have successfully raised this in 2 months. A much more positive signal. Now of course (and this is a key point in this entire blog post), $174K is more than $100K! The extra $74K she raises might be more valuable to her than the negative signal.

But generally speaking, I do think there is a lot of value in setting a realistic, achievable fundraising goal, and quickly blowing past it. You always have the option of increasing your maximum raise goal when you exceed it – which you can then do from a position of strength. Both Substack (initially set a $2 million goal, and then increased it to $5 million) and Levels (initial $2.5 million goal, quickly increased to $5 million) followed this playbook.

And purely pragmatically, I would strongly expect it to be the case that, if there are two identical Wefunder raises, and one has a maximum goal of $250K, and the other has a maximum goal of $2 million, the one with the goal of $250K will raise $250K more quickly.

Another consideration here is that, for a lot of startups, a community round might be part of a larger round. For example, a $250K allocation to let your customers invest, as part of a larger $2M round. So even if your total round goal is a larger number, your Wefunder raise goal might be a smaller component of that.

3. Build up momentum in private, first.

Before publicly launching your community round, it’s usually important to raise a significant portion of the round in private. Wefunder has a nice UI for this – using phrases like...